A new reader of mine, Nicole, recently emailed me with a question. She’s in a place financially that is probably familiar to a lot of us, so I decided to quote her email within this blog post (with her permission, of course!). Here it is:

I have been reading your blog now for about a month, and have telling all my friends about it. I love it because I am a working college student learning how to become more financially stable and independent. Here is my question. I have a great job. They are flexible with my volunteer job, allowing me to get the hours I need off occasionally. I have great benefits, as well as great paid time off. Here is the problem. Due to a decline in business, I went from full time to working 25 hours a week. They are hoping this is short term, but right now, it doesn’t look like it. I’ve been trying to create my budget, and have been updating it based off of my paycheck. However, the fact that each week my paycheck is drastically different makes it hard. At this point, I’m saving to move out in June, and completely pay off my college bill. At the point though, I haven’t been able to save. Any recommendations on how to keep up with a weekly changing budget, and still save?

About 3 months ago I was in a similar spot. The firm I was working for was consolidating departments and cutting peoples’ hours. At one point I was even asked to cut my own hours to about 25-30 per week. Later this same company was bought out by another and many lost their jobs in the process.

So when Nicole sent this email my way, I could only think of how many others out there must be in a similar position.

A Budget Used Correctly Creates Financial Peace Of Mind

While Alex and I were facing doubt concerning my work, we took the time to evaluate exactly how much it cost us to live on a regular basis. We could be somewhat certain of the exact cost of living for a month because of the accuracy of past budgets. We used different spreadsheets within a single Excel or Google Docs workbook to keep track of what had happened to our family financially in months’ past.

Knowing exactly what it costs to live for a month is a powerful tool. Since starting our budget in June 2008, we’ve had 9 months to figure out what an average month of living will cost us (right now it’s about 2k). Whatever that number is for you, make sure you use it. Because it’s advisable to have 3 months worth of living expenses in a liquid savings account, you need to know this number to make sure that you’re caught up on your rainy day fund or emergency fund (whichever you prefer to call it). I’ve learned that a budget is for more than just trying to restrain our natural appetites for spending. We use it to prepare for negative financial times to come.

How To Budget & Save With Inconsistent Family Income

Alex and I have fairly uncertain income from month to month. Parkway Authority (our business) has been very inconsistent lately, and Alex works more hours some weeks that others. Though recently my pay has been somewhat regular, we still have the same problem Nicole is running into. So how can you budget and save your money when you have little consistency financially?

March is tomorrow, so we sat down today and prepared this coming month’s budget. Here’s what we did:

Step 1: Estimate your net income– This month will be a 4-paycheck month for me, so I estimated what I would be bringing home. Alex also estimated what she would be making, based on how many hours she was going to be working. Parkway Authority isn’t considered because I don’t pay myself a dividend every month.

Step 2: Estimate your core expenses– When I say “core expenses,” I’m referring to those monthly costs that are 100% essential for living, including rent, food, gas, health, etc. Again, because we have budgeted for 9 months now, we can be extremely accurate when it comes to what it will cost us to live.

Step 3: Analyze- So when you take your net income and minus your core expenses, do you come up with a positive or negative number? Do you have money left over to save and have fun with? Or do your core expenses run you too thin? Is there going to be money for saving? If not, you better make some adjustments!

Step 4: Make Adjustments- You have 2 options if you have a negative number in step 3- pick up some part-time work or cut down on your core expenses. You have to do something! For example, when I am going to have a month where our income will be less, Alex and I will look for cheaper alternatives for dates. But to be honest, there’s usually not a lot of wiggle room when you’re talking about your core expenses, so you might have to evaluate why your cost of living is too high and make some life adjustments, which could include moving to a cheaper apartment, selling that car you can’t afford, or buying cheaper groceries for the month. Whatever the case may be, this is the time to make changes.Â Also, make sure you set money aside to save. Alex and I actually consider our “savings” accounts within our budget as expenses; they always seemed to get paid when you think of them that way.

Step 5: Set Goals & Be Disciplined- Now that you know what you need to do, set some goals and make it happen! It’s easy when you’re creating your budget to say you’re going to be successful financially for the month. Temptations to spend will rear their ugly heads, but you’ve got to remain strong!

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The process outlined above has worked for us. Nearly every month we’ve been able to save money (except just one!), and it’s because of this analysis that takes place before each subsequent month happens.

So my advice, Nicole, is to make sure you take the time to go through that process. I’m certainly no financial planner, but I know what’s worked for me and my family. Without really taking the time to analyze my month before it happens, I wouldn’t be doing nearly as well as I am right now. And sometimes in life (especially when you’re a student like me) you’re not going to be able to save money; it’s just a fact of life! Do your best, and you’ll be just fine.

If any of my readers have any other advice, it would be greatly appreciated.

I agree that you have to make adjustments because honestly there are so many little expenses in life that could put us in debt. For example, in January I had to pay $100 to renew my drivers license and on Friday I had to pay $70 just to apply for a different major at my school. The little expenses add up in some months.

Thank you! This is perfect. I’ve never sat down and really looked at how much I really need to survive. I will be doing that tonight. I’m trying to build up my emergency fund like Dave Ramsey talks about for these times in the future. I will continue to keep reading to stay updated. Thanks for taking your time out to help.

Great site. Keep up the good work. It is good to see that there are other young adults out there succeeding financially but that are also motivated to share this experience with others. I wish you great success.